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Journalism of Courage
With smart tweaking in tax slabs and rates under the new tax regime and extending the benefit of standard deduction, the government has made a big pitch for taxpayers to move from the old tax regime (OTR) to the new tax regime (NTR) by making taxation under the new regime nearly equivalent to OTR without the need for any deduction.
It comes on the back of the announcement to increase the limit of rebate from Rs 5 lakh earlier to Rs 7 lakh beginning April 1, 2023. This means that if an individual earns up to Rs 7 lakh, he/she is not required to pay any tax. However, if the salary is more than Rs 7 lakh he/she will have to pay taxes as per the applicable tax slabs under the new tax regime.
“Each salaried person with an income of 15.5 lakh or more will thus stand to benefit by Rs 52,500,” Union Finance Minister Nirmala Sitharaman said while announcing the change in the new tax regime.
Not only will taxpayers already under the new tax regime benefit from this tweaking (to a maximum of Rs 52,500), the announcement has also made taxpayers (under OTR) do their math to understand whether they should move from OTR to NTR.
Tax calculation for an individual earning Rs 15 lakh shows that while he/she will pay Rs 145,600 as tax in the new tax regime, in the old tax regime he/she would pay a tax of Rs 124,800 after claiming deductions of Rs 1.5 lakh under Section 80C; Rs 25,000 towards health insurance for self and family; Rs 50,000 as insurance for senior citizen parents; and Rs 200,000 towards home loan interest.
“It, however, depends on how much one can save to claim the maximum deductions available under the respective sections. A lot of individuals will find it convenient to shift if they can’t claim the maximum of all the deductions. It will also save them from a lot of compliance burden,” Surya Bhatia, founder of AM Unicorn Professional, said. He said some investors may however still find tax savings of Rs 20,000 to Rs 30,000 per annum significant enough to continue with the old tax regime.
It is, however, important to note that benefits under the old tax regime will be higher for an individual in the lower tax bracket if he/she somehow manages to claim most deductions. For example, if an individual earning Rs 10 lakh manages to claim the maximum amount of the four deductions stated above, he will pay a tax of Rs 18,200 under the old tax regime as against Rs 54,600 in the new tax regime.
Meanwhile, the government also made it attractive for the super rich (earning over Rs 5 crore) to shift to the new tax regime by offering them a hefty cut on surcharge from 37 per cent to 25 per cent, making their effective rate from 42.7 to 39 per cent.
